News Column

Bullard: Fed could hike interest rates next spring

July 18, 2014

By Joy Campbell, Messenger-Inquirer, Owensboro, Ky.



July 18--The Federal Reserve Bank is close to its goals of stable prices and maximum employment, and the country's central bank may look at increasing short-term interest rates in a "sooner rather than later" time frame, according to James B. Bullard, president and CEO of the Federal Reserve Bank of St. Louis.

Bullard, who has been the Eighth District Federal Reserve Bank's leader since April 2008, talked about the Fed's goals and policies as the main speaker Thursday for the "Greater Owensboro in 2065" summit at Owensboro Health Regional Hospital.

The Fed uses two main tools, short-term policy interest rates and quantitative easing in which the central bank buys government securities and mortgage-backed securities.

In the financial crisis, the bank lowered the short-term interest rate to zero and began making security purchases.

The objective now is to create a policy normalization path without creating economic inflation or significant problems, the speaker said.

Getting back to normal, though, takes years, and the policy goals are far from being met, he said.

The Fed is continuing to buy bonds, but it has reduced the amount it holds.

The central bank has not started to "normalize" for a number of reasons, including the low inflation rate over the past year; unexpectedly slow real GDP rate during the recovery; and labor markets that don't seem to be fully recovered even though unemployment has come down.

Bullard said payroll employment and unemployment rates are pretty good, but other labor market statistics are not so good.

Unemployment rates are close to normal and projected to continue to decline "so long as the economy continues to remain relatively robust," Bullard said.

"Where the policy debate is centered now is 'when will the job market be back to normal?' " he said.

Bullard said after his speech that his opinion continues to be that the Fed is most likely to raise interest rates at the end of the first quarter of next year. The key is whether the economy can produce 3 percent growth in the second quarter.

Owensboro'sMalcolm Bryant, president of The Malcolm Bryant Corp., serves on the Fed's Louisville Branch board of directors. That board serves as an outreach portal or advisory group for the St. Louis Federal Reserve. That board held its meeting in Owensboro this week.

Bryant said the Fed is responsive to anecdotal conversations the branch board provides about what's going on with "people on the street."

Joy Campbell, 691-7299, jcampbell@messenger-inquirer.com

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(c)2014 the Messenger-Inquirer (Owensboro, Ky.)

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Source: Messenger-Inquirer (Owensboro, KY)


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